Vendor Agreement

A Vendor Agreement is a binding legal arrangement between two parties, which broadly outlines the terms of a business relationship. A Vendor Agreement helps to protect both the parties in an agreement as it ensures that all the provisions in an agreement are carried out appropriately. For e.g.: an agreement with a florist to supply flowers at a place for a particular period of time contains a certain understanding of a Vendor Agreement. Similarly, all the commercial agreements that are undertaken in daily life are more or less Vendor Contracts where one party or a contractor agrees to supply goods or services and the other party displays the products or services for sale. Any two more businesses working together will always enter into a Vendor Agreement in order to ensure the smooth running of business.

Need of having a Vendor Agreement
Vendor Agreements are usually entered when there is an ongoing relationship between two businesses. For e.g. when a corporation undertakes to hire a contractor either for the supply of beverages at a workplace or cleaning service for a particular period of time. Such Vendor contracts are different from the Vendor contracts which are made to provide products or service for one time only.

Most Vendor Agreements are entered into for a particular period of time and they get terminated once the time gets completed. However, there are times when individuals enter into a Vendor Agreement slightly different from the usual retail Vendor Agreements because there is no ongoing professional relationship with the contractors. For e.g.: when there is day or night event, the event managers enter into an agreement with the contractors for the supply of materials required for the event along with their cost. This is done in order to mutually decide the prices of products or services and not let the contractor take advantage by changing the prices at the last moment.

Elements of a Vendor Agreement –

Goods and Services detailed description:
It becomes the responsibility of a corporation or individual entering into a Vendor Agreement with the contractor to make sure that the products for which the payment is made or going to be made are mentioned correctly in the contract. Similarly, if there is an understanding regarding the provision of services of a specified nature, same should find a place in the agreement too. The key is to describe everything that gives an understanding about the nature of products or services going to be delivered to the business.

Fixing the price:
The prices of goods and services which are going to be delivered by the contractor can be either fixed or payable as and when the delivery is done. The parties need to decide if there is going to be a fixed schedule for charging the prices of goods or services or it is going to be left to the Vendor’s discretion in consideration of market rates. It is a mutual decision of both the parties and whatever they arrive at must find mention in the Vendor Agreement so that there are no discrepancies in future.

Terms of delivery:
Another important requirement is to mention the time and frequency of deliveries. This will help in ensuring that the business of the other party doesn’t suffer due to delay.

Terms of Payment:
There are times when Vendors provide discounts on prepayment, lump sum payment or negotiation. So it becomes important to list down all the possible cases in the Vendor Agreement when the criteria of payment can be diverted to suit the needs of business at its best.

Performance standards:
If the quality of products or services provided by the contractors does not meet the expectations of the other party, then it is free to ask for providing the services again or put a penalty in terms of reduced future payments or monetary compensation etc.

Flexibility to change:
Keeping a room for making minor yet important changes in the Vendor Agreement is as important as listing down all the major elements like pricing, delivery or payment. This will ensure in rooting out the rigidity as and when the times change. There should also be a clause mentioning that any changes will be made only after oral or written mutual agreement between the parties.

Retain the ownership rights of data, licenses or other material which are critical to the business:
In case the Vendor Contract involves technology then it is suggested that the corporation seeking to hire a Vendor retains all the ownership rights of all the intellectual property as well as all the software licenses.

Indemnity:
In a Vendor Agreement, the indemnity clause is very important because it ensures that a party gets indemnified in case there is a gross negligence, willful misconduct or infringement of intellectual property right by the Vendor.

Conclusion:
Having a Vendor Agreement is a necessity more than just a formality. It is important to maintain a good relationship with the Vendors in the long term because such professional relationships help the businesses grow. This can only be done by chalking out major elements to be incorporated in a Vendor Agreement and at the same time allowing for some flexibility in the contract in order to suit the preferences of Vendors.

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Sanjna

Legal Consultant

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